End of Startup Era: Chips Face Innovation Gap

SAN FRANCISCO — The Silicon Valley venture capitalists who once nurtured the semiconductor industry have almost all moved on to greener pastures in web startups, so it's not entirely clear what will be the source of tomorrow's chip innovations.

That was the conclusion of a panel of veteran semiconductor chief executives and investors at the International Solid State Circuits conference (ISSCC) here. The group was modestly optimistic that advances will come from a variety of sources.

A few big companies such as Apple, Google, and Microsoft are getting more vertically integrated by spending more on semiconductors. Developing countries such as China and India are investing in the industry, though they debated the pros and cons of government involvement. And a handful of investors still nourish a few chip startups.

Rappaport -- who helped start companies such as Atheros, Silicon Image, SuVolta, and Transmeta -- kicked off the discussion with a frank assessment of what he called the semiconductor innovation gap:

VC funding for chip startups has declined to the point that no one is collecting the data since 2011, said Rappaport.

The history of the semiconductor industry is the history of innovation through startups, but we are entering a new era. A steady flow of VC-financed, US-based and funded startups has slowed to a trickle. In 2012 and 2013 no one is even keeping the data anymore because the numbers are so small.

Semiconductor startups have been terrible investments. After 2011 they have not recovered anything close to 100% of the capital invested. Today if you invest in semiconductors you have a 50% chance of losing 60% of your money -- it's hard to get up in the morning. Somehow you have to get paid for risk and we haven't been paid for it.

Startups got expensive in part due to the cost of masks. The most interesting problems are very complicated and complexity is expensive -- verification is the biggest expense. Cheap things don't create enough value for startups to differentiate themselves, and it's harder these days to take big companies by surprise given the complexity of delivering new products.

There will not be a robust pipeline of startups ever again, so innovation has to come from other places. One challenge is to figure out how to harness the resources of large corporations.

>> We are looking into a Plutonium chip which we expect to self power a SOC and external memory.

You may need to use any description as most may be turned off by knowing Plutonium is inside your product. What if there is fire and the thing explodes? Are they safe?. Think of the reason we have MRI as a name to hide what makes people uncomfortable.

>> If the hypothesis is that semiconductor innovation requires VC investment in semiconductor manufacturing, I disagree.

I am not sure anyone is talking about fab. We are discussing fabless strategy where innovation in circuits and systems rule and dominate. If you check very well, we are not attracting a lot of dollars in the design innovation phase. No one is talking of the production innovation - that is not a VC kind of game.

Also, if Intel's "first product" was in 1969 and the Apollo mission were from 1961 to 1975, then that begs for many questions your assertion, like, which Apollo mission do you refer to below? And how many device did those rocket use? Enough to sustain Intel's quick early growth? That's not likely, even at the out-of-control prices that govt. pays. That leaves direct funding then. NASA directly funded Intel's develpment of the products listed above? How much? Were there any other significant investors or would Intel have failed to launch (pun intended) without NASA's (ah.. I mean our father's) money?

There are few of these types of shows that I regret not being able to attend. This one looks like a glaring exception to that rule. I would love to have been there to hear these movers and shakers speak.

Every development has a cycle. Computer gets faster and faster everyday. A regular user probably don't feel a different between a 3 years old laptop and today's laptop. However, more products and information are moved to the Internet. Those require software engineers to develop. In addition, today's web-based application isn't so easy anymore. A software engineer can hardly go by with knowing only 3 languages. Today belongs to software engineer. Yet, for example, when there is a breakthrough of semiconductor such as using different material than silicon, hardware engineer will thrive again.